A Contrarian Take on Where Canadian Mortgage Rates May Be Heading
September 28, 2026
Last week we learned the US economy added an estimated 29,000 new jobs in September, well below the consensus forecast of 90,000. In addition, the US Department of Labor reduced its previous estimates for employment growth in July and August by an additional 60,000 jobs.
Average US hourly earnings growth slowed to 3% on a year-over-year basis, declining for the third consecutive month. That is noteworthy for two reasons:
- US inflation continues to rise faster than US wages, which means the purchasing power of the average US worker is shrinking. That is disinflationary because it acts as a constraint on spending.
- A sustained and broad-based rise in US inflation is unlikely to occur if there is no corresponding pass through to US wages. There is no evidence of that occurring right now.
The latest US jobs report was deemed to be weak overall, and it reinforced expectations that the US Federal Reserve will not continue to hike its policy rate at its next meeting on October 27. (The Fed was reluctant to do that anyway, because its next meeting is so close to US mid-term elections on November 3.)
The US bond futures market is still pricing in additional 0.25% hikes by the Fed at its upcoming meetings on December 9, 2026 and March 17, 2027. But weak economic data, like last week’s employment report, is causing those bets to be pared back at the margin.
The Latest on Mortgage Rates
Government of Canada (GoC) bond yields edged higher again last week, alongside their global counterparts.
The weak US employment report wasn’t enough to offset the gravitational pull of rising oil prices, and the price of a barrel of West Texas Intermediate (WTI) oil increased again last week.
GoC bond yields have been very highly correlated with WTI during the US/Iran war. For example, the level of the five-year GoC bond yield, which our five-year fixed mortgage rates are priced on, has had an 86% positive correlation with the price level of WTI over the past three months.
Canadian mortgage lenders continued to raise their fixed rates last week in response to the steady bond-yield run-up.
Variable-rate mortgage discounts also narrowed last week.
Bond-market investors are pricing in an aggressive series of rate hikes by the Bank of Canada (BoC) over the next twelve months. For my part, I think it is unlikely that the rapid series of hikes that is currently priced into GoC bond yields and by the bond-futures market will materialize.
My Take on Today’s Mortgage Options
My assessment is unchanged from last week.
I can well appreciate the appeal of fixed-rate stability in our current volatile environment.
Many of the borrowers I work with today are choosing fixed rates, and I’m not trying to talk anyone out of those options. I see the value of certainty in an increasingly uncertain world even if it comes at a higher cost.
When asked for my view on whether a fixed or variable rate is more likely to prove cheaper, I maintain my view that today’s variable rates have the best chance to save borrowers money over their full terms – an admittedly contrarian call right now.
Variable mortgage rates have held steady, but the backdrop that is keeping them in place is anything but stable.
Until recently, two competing risks had been roughly offsetting each other: 1) The upside risk that spiking energy prices will lead to generalized inflation, and 2) the downside risk that the US/Canada trade war will disrupt our economy and cause disinflation.
A resurgence in the energy-price run up has already spooked global bond markets, and GoC bond yields are being taken along for the ride.
For now, higher energy prices are dominating the inflation narrative – and will likely continue to do so for as long as war rages in the Middle East.
While I recognize the risk that an extended period of elevated energy prices will lead to more generalized inflation pressure, there are reasonable grounds to question whether that outcome is as inevitable as the consensus believes (for more detail on why I write that, check out this recent post).
Important note: Anyone choosing a variable rate should do so only if they are comfortable with its inherent potential for volatility. Borrowers must have the financial capacity to withstand higher costs and, in some cases, higher payments.
Fixed rates also come with risk. For example, if bond yields rise sharply in anticipation of higher inflation that doesn’t ultimately materialize, anyone who locked in a fixed rate during the run-up will be paying that associated premium regardless of any subsequent yield/rate reductions.
Insider’s Tip for Borrowers
This post offers mortgage advice to homeowners who are trying to work through a divorce.
It outlines some key steps that must be taken prior to removing a spouse from title and/or completing a refinancing to buy them out. It also includes several other useful tips that I have accumulated over many years of helping borrowers navigate a marital split.
Three Posts Every New Visitor to My Blog Should Read
This post provides a detailed comparison of the pros and cons of fixed- and variable-rate mortgages amidst trade-related economic uncertainty.
For myriad reasons, often unanticipated, many Canadians end up having to break their fixed-rate mortgages. This post provides a detailed explanation of the very different ways that lenders calculate their fixed-rate mortgage penalties. The amounts charged can vary significantly from lender to lender.
This post provides a detailed summary of the key terms and conditions to pay attention to in your mortgage contract. (These are not standard and can vary in important ways.)
